Working with a mortgage broker is a different experience than working with a bank specialist. It’s also a different part of the home buying process compared to working with your Realtor. Some people may have never worked with a mortgage broker before and don’t know what to expect. Because of that, there are some questions…Read Article
Could You Benefit from a Purchase Plus Improvements Mortgage?
While there seems to be a virtually endless supply of real estate listings available when you’re searching for your perfect place to call home, finding the right property that meets both your functional needs and your budget is not always an easy task.
You may find a house with the perfect layout in your ideal neighbourhood, but the interior needs some major upgrades before it’s manageable for you and your family. Or maybe just the essentials like the kitchen and bathrooms require attention.
Purchase Plus Improvement Flexibility
Whatever your reno needs may be, there are mortgage products available that allow you to add renovation funds to your mortgage amount. With a Purchase Plus Improvements (PPI) mortgage, you can buy a home, renovate it to your liking and pay for it all in one mortgage payment.
This is a flexible product that enables you to not only buy a home that’s more affordable due to required upgrading, but also allows you to customize your renovations.
There is a stipulation, however, that requires improvements to be permanent in nature, including items such as paint, cupboards, flooring, roofing, furnace, etc. Appliances and other non-permanent fixtures are not covered within a PPI mortgage.
Maximum Reno Amount Depends on Down Payment
There are two different choices available for this product depending on how much money you’re putting towards your down payment.
For purchases up to $500,000, you can make a down payment for as little as 5%. Anything above that threshold, including the improvement amounts, requires a 10% down payment.
In this case, most lenders will max out at 20% of the purchase price or $40,000 for improvements, whichever is lower.
Example: When purchasing a $500,000 property with $40,000 in additional improvements (making the purchase price $540,000 based on the improved value), you’ll need a $25,000 down payment for the first $500,000 plus $4,000 for the additional $40,000 = $29,000 total down payment amount required.
If you’re making at least a 20% down payment, improvements can total more than $40,000 – up to $60,000 or potentially more on exception.
How Are Improvements Approved?
Lenders typically require a quote from a contractor for the noted improvements. They also want the actual improvements to stay true to what’s contained in the quote.
Depending on the lender, you can often complete some or all of the improvements yourself. But not all lenders allow for DIY improvements.
The selected lender will advance what’s needed for the initial purchase at funding. A final advance of funds will be released within 120 to 150 days once all improvements are 100% complete as reimbursement for improvement costs.
The lender will send an appraiser to confirm the quoted improvements are complete unless the improvements total $10,000 or lower, in which case they may ask for paid invoices. This is dependant on the lender.
Have questions about Purchase Plus Improvements options or your mortgage in general? Answers are a call or email away.